Duty drawback programs and foreign-trade zones are two options, speakers said during a JAXPORT conference, but there are other ways to lower the financial obligation.
As Section 301 tariffs levied against China continue to impact importers — and possible Section 232 tariffs with the European Union loom — there are steps importers can take to mitigate risks.
The United States is imposing 25 percent tariffs across $50 billion worth of goods from China in annual import value and 10 percent tariffs across another $200 billion. The tariffs haven’t just affected importers financially but have caused them to modify their supply chains as well.
“Beyond just the dollar impact, which we feel in significant, it’s the unpredictability that’s really affecting us as we try to make our long-range three- to five-year plans of where we want to put certain products in production,” said Jason Nichols, director of important compliance for Tapestry, on Tuesday during the JAXPORT 2019 Logistics & Intermodal Conference.
He added, “We don’t have a lot of production still in China. Some things that we would have stayed there … we now have other markets to go to to produce those products. … It’s not easy to turn your supply chain on its head and pick up shop and relocate, so definitely facing some challenges.”
He said the diversification of Tapestry’s manufacturing to places such as Cambodia and Thailand “created a lot of value unlocked for us” despite some challenges moving cargo out of the countries.
Javier Munoz, global trade compliance manager for Price Smart, said his company had to reanalyze its sourcing plan to determine how to avoid the tariffs.
“Even for us to change in source from another vendor from another origin, it takes us a couple of months to even adjust to the change,” Munoz said. “What we’ve done is move more direct shipments, so a lot of the volumes taken, because we’re primarily exports, we’re steaming away a lot of exports from the U.S. distribution channel and we’re shipping directly from Asia … to Latin America and the Caribbean.”
Munoz said Price Smart also has taken advantage of multiple duty drawback programs, which is the refund of certain duties, internal revenue taxes and certain fees collected upon the importation of goods allowed upon the exportation or destruction of goods under U.S. Customs and Border Protection (CBP) supervision.
“Anything’s eligible, there’s just certain different programs,” said Derek McKenny, director of business development for the Southeast region customs brokerage services for Kuehne + Nagel. “If you’re re-exporting product that you’ve imported into the United States of America, then you are eligible for duty drawbacks, but it depends on what you are doing to the said commodity.”
The foreign-trade zone (FTZ) program is another way for importers to mitigate the risk of duties, said Virginia Thompson, vice president of product management for Thomson Reuters, which now includes Integration Point. Importers don’t have to pay duties on goods imported into an FTZ until they are moved out into U.S. commerce, she said, and duties are not paid at all if goods are exported out of the United States.
“When these duties came along, we had to help our clients manage that, because if you’re pooling those goods in an FTZ, you’ve never paid duties on them,” Thompson said. “When these elevated duties went into effect, what you’re allowed to do in that situation is actually make entry on them, declare them, pay the duties on them the day before the elevated duties are going to go into effect at the … current duty rate.”
The duty drawback process is “very cumbersome,” Nichols said, and Tapestry would “capture those dollars much better through an FTZ.”
“You’ve got to do the ROI, you’ve got to do the analysis, on what your spend is to open up a foreign-trade zone … versus the drawback … and the time it takes to file those claims and wait for those monies, as opposed to a foreign-trade zone it’s immediate,” McKenney explained.
Importers also should weigh the costs of tariffs against the costs and risks of pulling the cargo forward ahead of the elevated tariffs, the speakers said. The costs of offloading and unloading the goods, handling and storage space and the risks of breakage and theft all should be considered when determining to pull ahead products, Thompson said.
“While ideally you do want to get the goods from the point of bringing it into the country directly to the store to the consumer as quickly as possible, if you can bring it in more quickly to avoid the elevated duties you want to look at that,” she said. “There’s all sorts of inventory-handling costs that go into that you have to weigh into those elevated tariff costs.”
Companies also need to ensure the product’s Harmonized System classification code is correct, which is the “foundational starting point of importing and exporting,” Nichols said. Importers need to review and audit the numbers to ensure the codes are properly classified, he said, but the regularity of such action depends on the size and scope of the company.
Thompson said the CBP publishes and updates its key priority issues, which could be used as a guideline while reviewing the classification.
“You can focus in on those so that you know what they’re going to be auditing against and what they’re going to be looking at as the key priority issues and know what tariff numbers that you import that fall under those,” she said. “There are tools you can look at that will pull out reporting to look at if you have a product number that you have imported over time over different product numbers that will show you that.”
There are additional ways to lower the value of the imported good to decrease the amount of duties paid. One way is through the 9802 exemption program, which allows the value of any U.S. component incorporated into a product be subtracted from the overall importation value.
The First Sale of Export duty program allows importers to base the transaction value of a customs entry on the transaction between the manufacturer and vendor instead of the marked-up value between the vendor and importer.
“One of the ways that I talk about mitigating … we bring down the financial obligation the best we can,” McKenney said.